The hockey lockout of 2012–2013

(continued...)

Kelly’s replacement was Donald Fehr, a lawyer and former executive director of the Major League Baseball Players Association (MLBPA) from 1983 to 2009. Fehr oversaw work stoppages in baseball, including the 1994–1995 strike. He is known as a smart, tough negotiator and, like Marvin Miller, his predecessor at the MLBPA, as a man of principle and integrity.13

Factors contributing to the lockout

Under the 7-year agreement reached following the season-ending lockout of 2004–2005, the league’s annual revenue grew from about $2.2 billion in 2005–2006 to about $3.3 billion in 2011–2012.14 Players enjoyed the fruits of these revenue increases, as average salaries rose from $1.46 million in 2005 to $2.17 million at the time negotiations for the current agreement began in 2012.15 Adding to revenue was the 10-year, $1.9 billion television deal that the NHL reached in 2011 with Versus and NBC.16 Although the new national television agreement more than doubled revenues, the money is dwarfed by the larger television packages in the NFL, MLB, and the NBA. Most of hockey teams’ revenue is locally generated, through attendance at games and local television agreements.

Not only was there a bigger pot of money to contest in negotiations, but hockey team owners were getting a smaller share of revenues than their counterparts were in other sports.

Yet despite robust revenue growth, the team salary cap, and a cap on rookie salaries, the league was not entirely healthy. According to an independent study by Forbes magazine, 13 of the 30 teams in the NHL lost money in 2011–2012 and 5 teams lost $12 million or more.17 Also, despite the 24-percent rollback in salaries that players accepted under the previous collective bargaining agreement, the division of hockey-related revenue between players and owners favored the players by 57 percent to 43 percent.18 By contrast, in the aftermath of the 2011 lockouts, NFL owners captured 53 percent of revenues and NBA owners captured 50 percent. Thus, not only was there a bigger pot of money to contest in negotiations, but hockey team owners were getting a smaller share of revenues than their counterparts were in other sports.

Another cause of the work stoppage was the NHL’s market structure. A considerable difference exists in the economic welfare of teams. Three clubs—the Toronto Maple Leafs, New York Rangers, and Montreal Canadiens—generate about 80 percent of the league’s revenues,19 and, as noted earlier, 13 of the 30 teams lost money in 2011–2012. Much of the problem is associated with the rich–poor nature of markets. Big cities, such as New York, Chicago, and Boston, have a natural advantage over smaller market cities, such as Columbus, St. Louis, and Raleigh, NC (home to the Carolina team). Not only do large markets enjoy more attendees at games, but they also have a bigger audience for viewing games on local television, which is an important generator of revenue.

Adding to the market structure problem is the NHL’s geographic predicament. Cities in Canada, where hockey is by far the most popular sport, have a market advantage over cities in the southern part of the United States. It is not surprising, then, that clubs located in Nashville, Tampa, Miami (Florida Panthers), and Phoenix lost money in the past season. Typically, citizens of these communities have not grown up playing and watching hockey and may therefore be less attracted to the sport. Revenue generation can worsen if small-market, southern U.S. teams have a poor win–loss record. Moreover, the lockouts that have fractured seasons are themselves disturbing to fans who desire accessibility to their teams.

Notes

13 See Jeff Z. Klein, “Buoyed by experience, Fehr holds tight to his composure and his principles,” New York Times, October 22, 2012, p. D6; and David Pollak, “Fehr just the man for the job,” Contra Costa Times, January 1, 2013, p. C1.

14 NHLPA data. By way of comparison, the annual revenues in the NFL, in MLB, and in the NBA are approaching $10 billion, $7 billion, and $4.5 billion, respectively.